Option on Mexican royalties draws suitor to Reno company

In mid-December, Reno's Battle Mountain Gold Exploration Corp. said it had optioned 2 percent of the royalties from the Dolores Mine under development in Chihuahua Mexico.

The $9.45 million option which hasn't yet been exercised proved to a key element leading to the planned $49 million acquisition of Battle Mountain by Denver-based Royal Gold.

Tony Jensen, president and chief executive officer of Royal Gold, said last week his company had watched the development of Battle Mountain carefully for the past year.

In late 2005, Battle Mountain left behind the business of gold exploration, borrowed nearly $14 million and bought a portfolio of royalty interests in 11 gold properties from IAMGOLD Corp.

Royal Gold, too, is in the business of collecting royalty payments from producing gold mines.

Jensen said his company got substantially more interested in Battle Mountain when it nailed down the option on royalties from the Mexican mine's production. The Dolores Mine is projected to produce at least 3 million ounces of gold valuing Battle Mountain's option at nearly $39 million at current gold prices.

As part of its agreement to buy Battle Mountain, Royal Gold agreed to provide financing to close on that option this month.

"That's really the gem of their portfolio," Jensen said.

Royal Gold will pay 1.57 million of its common shares for Battle Mountain. The stock was trading around $31.50 last week.

Mark Kucher, chairman and CEO of Battle Mountain, noted the acquisition values his company at 60 cents a share a 29 percent premium over its average price in the 20 days before the acquisition plan was announced.

Kucher, who owns 18 percent of his company's stock, has legally locked in his support for the acquisition.

The companies didn't set a date for the acquisition to close.